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Legislation Introduced Which Would Re-enact Georgia’s New Restrictive Covenants Legislation

Posted by Neal F. Weinrich on January 28, 2011

As this blog and others have discussed, the question of when Georgia’s new restrictive covenants law went into effect is somewhat unclear. By its own terms, House Bill 173 went into effect on November 3, 2010, the day after voters ratified an amendment to Georgia’s Constitution to allow the legislature to legislate concerning restrictive covenants. See H.B. 173, 150th Leg., Reg. Sess. (Ga. 2009), at § 4.

However, under Art. X, § 1, ¶ 6 of the Georgia Constitution, an amendment to the Constitution becomes effective on the first day of January following its ratification, unless the amendment or the resolution proposing the amendment provides otherwise. Neither the amendment nor House Resolution 178 which provided for the ballot referendum on the amendment states that the amendment would go into effect immediately. Therefore, the amendment to the Constitution did not go into effect until January 1, 2011.

This “gap” was apparently unintended by the legislature. To address this issue and the questions which have been raised about it, House Bill 30 was recently introduced. This bill would reenact House Bill 173. Section 1 of the legislation indicates that it intends to cure the issue of when the law when into effect: “During the 2010 legislative session the General Assembly enacted HR 178 …, the constitutional amendment necessary for the statutory language of HB 173 …, and the voters ratified the constitutional amendment on November 2, 2010. It has been suggested by certain parties that because of the effective date provisions of HB 173 …, there may be some question about the validity of that legislation. It is the intention of this Act to remove any such uncertainty by substantially reenacting the substantive provisions of HB 173 …, but the enactment of this Act should not be taken as evidence of a legislative determination that HB 173 … was in fact invalid.” See H.B. 30, 151th Leg., Reg. Sess., LC 29 4456 (Ga. 2011), at § 1.

This legislation has not yet been voted on. If it passes in its current form, it may create additional uncertainty in determining exactly what date the new law started to apply or will start applying. Like House Bill 173, House Bill 30 applies only to contracts entered into on and after it becomes effective. Also, as drafted, it repeals all conflicting laws. There thus might be an argument that the new restrictive covenants legislation would not apply to any agreements drafted prior to House Bill 30 going into effect. That is, the new law might arguably not apply to restrictive covenants in agreements entered into after January 1 but before House Bill 30 goes into effect. As such, and as the proposed legislation is expected to pass, employers who previously intended to revise the restrictive covenants in their employment agreements at the beginning of this year may wish to monitor this legislation and hold off on implementing new agreements until after its passage.

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